OPERATING AND CAPITAL BUDGET - Fayette County Government

safeguard the resources

safeguard the resources entrusted to it, yet flexible enough to use the most appropriate financing mechanisms as conditions and needs change. In issuing, managing, and retiring debt, the county will abide by relevant provisions in the Georgia Constitution and codified law. As used in the state constitution, the term ‘debt’ means a fiscal liability not to be discharged by taxes levied within the year in which the liability is undertaken (Attorney General Opinion 75-19). Before incurring any bonded indebtedness, an analysis will be completed that shows anticipated annual tax collections will be sufficient to pay the principal and interest within 30 years. To facilitate use of this policy in financial administration and management, it is divided into sections pertaining to: debt limit, debt structure, debt issuance, and debt management. 1. Debt Limit - Article IX of the state constitution sets legal limits on the maximum allowable amount of debt. In compliance, the county’s total debt will not exceed 10% of the assessed value of all taxable property within the county. Any proposed debt will be coordinated with the multi-year comprehensive plan and capital improvement program, and will reflect the priorities identified in the plans. The county will use voter-approved general obligation debt to fund general purpose public improvements which cannot be financed from existing funding streams. Long-term debt will not be used to pay for on-going costs. Analysis of the feasibility of issuing debt for a capital project will consider ability to fund future operating, support, and maintenance costs. A major consideration in issuing debt is affordability. To develop an indication of county residents’ ability to absorb additional debt, the following ratios will be considered: a. Current debt per capita for the county b. Per-capita debt as a percent of per-capita income c. Debt service as a percent of current general fund revenues d. The ratio of debt to taxable property value An analysis of revenue and expense trends will also be completed to provide an indication of the county’s ability to repay the debt into the future. 2. Debt Structure - Debt will be financed for a period not to exceed the useful life of the capital improvements or other benefits derived, but in no event shall it exceed 30 years. Debt will not be used when pay-as-you-go funding is available. If the direct users of a county service can be readily identified, consideration should be given to their paying for the services they receive through fees, assessments, or other appropriate charges. Revenue bonds will be used to finance enterprise systems or other undertakings where appropriate. Since revenue-bond debt is paid out of revenue derived from the undertaking, and is not considered a debt of the county in state law, care will be taken to assure that anticipated revenues will meet principal and interest payments as they come due. In compliance with the state constitution, the county will not exercise the power of taxation for paying any part of the III - 14

principal or interest of revenue bonds, nor will it pay revenue bond obligations out of general revenues or with revenue sharing funds. The county will operate in a fiscally conservative way that best preserves and safeguards it citizens’ resources. Toward this objective, the favored type of debt instrument will normally use fixed rates of interest. Debt with variable-rate interest payments should not be used unless it can be clearly documented that it will provide the best alternative for debt financing, taking care to consider the total cost of issuing, monitoring and managing this type of debt. If used, the county’s variable-rate debt will not exceed 20% of total debt, unless benefit to the county’s taxpayers is clearly documented. The county will not use derivatives or other alternative financing for speculative purposes. Alternative financing products will be used only with approval of the Board of Commissioners, and only for appropriate objectives, such as debt savings due to market conditions, better management of assets and liabilities, reduced interest rate risk, or improved cash flow. Any consideration of using derivatives will include an analysis of all known or anticipated costs, and all risks such as basis risk, tax risk, counter-party risk, termination risk, liquidity renewal risk, remarketing risk, and credit risk. It should also include an analysis of the county’s ability to perform adequate risk management over the life of the obligation. Inasmuch as variable rate debt will not be the prevalent form of financing, the need for alternative financing products like derivatives should be minimal. In the event that an investment introduces the possibility of an arbitrage rebate liability, the Finance Department will monitor the investment closely. Outside expertise will be acquired to assist with the calculation and determination of rebates due to the Internal Revenue Service, inasmuch as the regulations and calculations are very complex, and any errors could result in significant settlement payments by the county. Conduit debt involves certain limited-obligation revenue bonds, certificates of participation, or similar debt instruments issued by a county government specifically to provide capital financing for an independent third party, such as a development authority. This does not obligate the county financially. However, the county reserves the right to approve or disapprove a conduit debt issue based on the third-party borrower’s creditworthiness, credit rating, or other circumstances that it may deem of significance. The county may also consider how the use of the proposed debt would fit into existing public policy and long-range plans. 3. Debt Issuance - Standard practice will be to sell bond issues through the competitive bid process. There may be times, however, when conditions indicate that a negotiated bid will be more favorable; for instance, if an issue is unusually small, unusually large, or contains complex or innovative features. An evaluation of the method of sale will be done for each bond issue, including an assessment of the different risks associated with each method. Thorough records will be kept that document the process to demonstrate that it was equitable and defensible. If a negotiated bid is to be used for a bond issue, the competitive process will be used to select an underwriter, in order to ensure that multiple proposals are considered. III - 15